Market Overview

Seattle Genetics Falls After Q3 Results and Analyst Downgrade

Shares of biotechnology firm Seattle Genetics (NASDAQ: SGEN) are down around seven percent in mid-day trading on Thursday after the company released its fiscal third-quarter earnings results on Wednesday after the closing bell and provided poor full-year guidance. The stock, which is still up better than 36 percent in 2012, has broken through near-term support levels going back to this Summer and could be a potential short candidate.

Nearly 21 percent of Seattle Genetic's float has been sold short and the stock is now trading below its 20, 50, and 200-day moving averages. The move on Thursday is coming on very heavy volume with more than 2.2 million shares already trading hands compared to a three month daily average of under 800,000.

For the third-quarter, Seattle Genetics said that it lost $13.7 million or $0.12 per share, compared to a loss of $40.7 million or $0.35 per share, in last year's corresponding period. This was better than the analysts' consensus estimates which called for a loss of $0.15.

Sales in the quarter were $33.7 million, a big jump from the $10.0 million that the company reported in last year's third-quarter. The number, however, was nowhere near Wall Street consensus revenue expectations of $52.66 million. Looking ahead, Seattle Genetics said that it expects revenue between $132 million to $137 million for fiscal 2012. This is significantly below the $209.03 million in revenue for the full-year that analysts are currently projecting.

Given the extremely disappointing revenue numbers for the third-quarter, and the terrible full-year guidance, it is surprising that the stock is only down seven percent. At the open on Thursday, however, SGEN was down significantly more, but quickly bounced back. Shares opened the day at $21.70 after closing on Wednesday at around $24.47, representing a loss of more than 11 percent for the name at the beginning of the day.

In the wake of the company's results, Mara Goldstein, a Cantor Fitzgerald analyst, downgraded the shares from "Hold" to "Sell." She also slashed her price target on SGEN from $30.00 to $20.00. Goldstein noted that Seattle Genetics has "struggled to produce sequential quarterly growth" in its business.

The company has one marketed product, known as Adcetris, which is used to treat Hodgkin's lymphoma and systemic anaplastic large cell lymphoma. Adcetris was approved by the FDA in August 2011 and Seattle Genetics continues to conduct additional clinical trials on the product in order to broaden its marketing approval. In addition to Adcetris sales, Seattle Genetics also receives collaboration and royalty revenues.

Goldstein wrote that "While we like the longer-term opportunity for (Adcetris) to become a much more significant revenue-generating product, the company's valuation relative to the near-term prospects no longer looks compelling to maintain our (hold) rating."

Indeed, SGEN is a richly valued company considering it has not earned a profit in any of the last five years. Nevertheless, the market has awarded SGEN a market capitalization of more than $2.7 billion.

In addition to the downgrade at Cantor Fitzgerald, analysts at RBC Capital Markets lowered estimates across the board for the company for multiple years. The broker cut its full-year 2012, 2013, and 2014 revenue estimates for Seattle Genetics as well as its fourth-quarter 2012, full-year 2013, and full-year 2014 earnings estimates.

Given all of the bearish catalysts for the stock along with a rapidly deteriorating technical outlook, SGEN may be a name that traders will want to play from the short side. The next near-term support level for the stock is around $3.00 below at $20.00.

Posted-In: Analyst Color Earnings News Guidance Short Ideas Downgrades Price Target FDA Best of Benzinga

 

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